Personal Finance

Am I being too conservative with future home purchase budget?

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  • Jul 6th, 2020 11:19 am
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Am I being too conservative with future home purchase budget?

Hi everyone. Looking to buy a home within the next say 12 months.

Looking to purchase: 625-650k house (10% down, mortgage 575-600k)

Income: 150k (90k me in tech, 60k wife is a teacher)

Take home pay: $8k

Expenses: $5k (mortgage, prop tax, gas, groceries, insurance, phones, internet)

Retirement/investing: $1.2k

Discretionary spending: $800


That leaves 1k left for general saving (sinking fund savings, vacations, new car savings, etc). We are frugal, budget monthly, and have absolutely zero debt except our current mortgage. Cars owned outright. I work in tech and my wife is a teacher so it's nice to know she'll have a strong pension in the future.
This seems tight to me. The thought of bringing home 8k and 5k going out the door in expenses before retirement savings seems too high for me to get comfortable with. The last thing that makes this more nerve wracking is that we're expecting our first child in February, so household take-home pay will drop from 8k to about 6.5-7k with her on EI. Then when she goes back to work, daycare bills will be hell. We're in in our late twenties. If we buy a new house and don't ever pay extra on the mortgage the whole 25 years, the house would still be paid off by our mid 50's which would be very nice.

Am I being unreasonable? Too paranoid? Let me have it, RFD. I've been pondering this for months now.
Last edited by ChocolatePoo on Jul 5th, 2020 3:29 pm, edited 1 time in total.
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ChocolatePoo wrote: Hi everyone. Looking to buy a home within the next say 12 months. We'll be putting down somewhere around 10%. Household income is 150k (90k me, 60k wife), looking at houses in the 600-650k range. After down payment and CMHC, the mortgage would be 550-600k depending on the house price. Our current home we bought for 425k with 5% down two years ago, and we are very comfortable with our bills.

Take home pay is about 8k/month. ALL expenses in the new home would be 5k/month. (That includes, mortgage, property tax, home/life/car insurance, groceries, gas, cell phones, internet). Discretionary spending $800/month. That leaves $2.2k. $1.2k to retirement/investments. 1k left for general saving (sinking fund savings, vacations, new car savings, etc). We are frugal, budget monthly, and have absolutely zero debt except our current mortgage. Cars owned outright. I work in tech and my wife is a teacher so it's nice to know she'll have a strong pension in the future.

I would like to retire somewhat early (55-58 years old) so I consider retirement savings as a mandatory bill, so I lump it with the 5k of monthly expenses. That means it's really over 6k in monthly expenses with an 8k take home pay.

This seems tight to me. The thought of bringing home 8k and 6k going out the door mandatory seems too high for me to get comfortable with. The last thing that makes this more nerve wracking is that we're expecting our first child in February, so household take-home pay will drop from 8k to about 6.5-7k with her on EI. Then when she goes back to work, daycare bills will be hell. We're in in our late twenties. If we buy a new house and don't ever pay extra on the mortgage the whole 25 years, the house would still be paid off by our mid 50's which would be very nice.

Am I being unreasonable? Too paranoid? Let me have it, RFD. I've been pondering this for months now.
Where are homes in that price range?
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If you can manage with $2K after all said and done, I say go for it.
Personally, I'd put 20% down.
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ChocolatePoo wrote: Hi everyone. Looking to buy a home within the next say 12 months.

Looking to purchase: 625-650k house (10% down, mortgage 575-600k)

Income: 150k (90k me in tech, 60k wife is a teacher)

Take home pay: $8k

Expenses: $5k (mortgage, prop tax, gas, groceries, insurance, phones, internet)

Retirement/investing: $1.2k

Discretionary spending: $800


That leaves 1k left for general saving (sinking fund savings, vacations, new car savings, etc). We are frugal, budget monthly, and have absolutely zero debt except our current mortgage. Cars owned outright. I work in tech and my wife is a teacher so it's nice to know she'll have a strong pension in the future.
This seems tight to me. The thought of bringing home 8k and 5k going out the door in expenses before retirement savings seems too high for me to get comfortable with. The last thing that makes this more nerve wracking is that we're expecting our first child in February, so household take-home pay will drop from 8k to about 6.5-7k with her on EI. Then when she goes back to work, daycare bills will be hell. We're in in our late twenties. If we buy a new house and don't ever pay extra on the mortgage the whole 25 years, the house would still be paid off by our mid 50's which would be very nice.

Am I being unreasonable? Too paranoid? Let me have it, RFD. I've been pondering this for months now.
I'm told kids are very expensive. Given you've got one coming soon, I think you need to re-evaluate how much income you expect to have left each month, both while your wife is on EI and while she's back at work.

My guess is that with a kid you're probably going to be closer to a razor-thin margin of cash left each month, and that would make me nervous, particularly if you also want to contribute to an RESP for them each year (I believe you need to contribute $2,000 or $2,500 each year to max out the RESP government benefit payout). All of those added expenses would make me nervous with your numbers.
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Apr 9, 2015
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Your combined monthly take-home pay should be closer to 9k (26 pay divided by 12 months), so after 5k expenses, net is 4K. I’m in a similar situation (household income 160k, 600k mortgage), and we’re able to save 3-4K per month easily now that the expenses for commute/eating out/shopping/vacation is non-existent. A child on the way would mean more expenses down the road, however both of you are early in your careers so income growth is clearly positive. As you’ve stated you live frugally, I’d say your house budget is definitely reasonable.

If I were you I’d put 20% down to save on the CMHC insurance.
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c229chen wrote: Your combined monthly take-home pay should be closer to 9k (26 pay divided by 12 months), so after 5k expenses, net is 4K. I’m in a similar situation (household income 160k, 600k mortgage), and we’re able to save 3-4K per month easily now that the expenses for commute/eating out/shopping/vacation is non-existent. A child on the way would mean more expenses down the road, however both of you are early in your careers so income growth is clearly positive. As you’ve stated you live frugally, I’d say your house budget is definitely reasonable.

If I were you I’d put 20% down to save on the CMHC insurance.
Our take home is about 8.2k because my wife's DB pension takes a chunk out of her pay. I also have a small RRSP at work (3% deduction + 3% match). Career growth is also something to consider, that's true. Unfortunately we won't be in a position to save up 20% by the time the houses we want are still in our price range. Thanks for the feedback!
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ChocolatePoo wrote: Our take home is about 8.2k because my wife's DB pension takes a chunk out of her pay. I also have a small RRSP at work (3% deduction + 3% match). Career growth is also something to consider, that's true. Unfortunately we won't be in a position to save up 20% by the time the houses we want are still in our price range. Thanks for the feedback!
Both of you have pensions from work, if I were you I’d put the 1.2k in TFSA rather than RRSP, which could serve as investment/emergency fund. RRSP cannot be withdrawn anytime soon, so I’d avoid it at such a young age, you never know when you would need the money for.

Would you or your wife’s parents be able to help out with the down pay? If they have the extra cash, don’t feel bad about asking for help, I think the majority of parents would be willing to help provided they had the ability.

Don’t forget to withdraw the full amount on home buyers plan from both of your existing RRSPs in the purchasing year if you have any!
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c229chen wrote: Both of you have pensions from work, if I were you I’d put the 1.2k in TFSA rather than RRSP, which could serve as investment/emergency fund. RRSP cannot be withdrawn anytime soon, so I’d avoid it at such a young age, you never know when you would need the money for.

Would you or your wife’s parents be able to help out with the down pay? If they have the extra cash, don’t feel bad about asking for help, I think the majority of parents would be willing to help provided they had the ability.

Don’t forget to withdraw the full amount on home buyers plan from both of your existing RRSPs in the purchasing year if you have any!
The 1.2k for investments goes to our TFSAs, yes. Unfortunately parental help isn't likely right now. We do have savings separate from our emergency fund and may be willing to sell some stocks from our TFSA too. But even then, it wouldn't reach 20% down, more like 15%. The difference between 15 and 20% down is $200/month, which isn't too big in my opinion.
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ChocolatePoo wrote: The 1.2k for investments goes to our TFSAs, yes. Unfortunately parental help isn't likely right now. We do have savings separate from our emergency fund and may be willing to sell some stocks from our TFSA too. But even then, it wouldn't reach 20% down, more like 15%. The difference between 15 and 20% down is $200/month, which isn't too big in my opinion.
I take it you don’t have RRSPs now? Home buyers plan allows each of you to withdraw 35k from RRSP without being taxable in 15 years. If you can deposit the money now and save it there 90 days, you will be able to get some taxes back for the 2020 tax year.
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Think you have nothing to worry about.
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IMO you could go a bit higher - the banks will certainly let you - but it changes lifestyle too so, every little bit more you go up comes with a trade off.
You shouldn't have to go crazy high for a nice home in Courtice IMO
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ChocolatePoo wrote: Looking to purchase: 625-650k house (10% down, mortgage 575-600k)

Income: 150k (90k me in tech, 60k wife is a teacher)

Take home pay: $8k

Expenses: $5k (mortgage, prop tax, gas, groceries, insurance, phones, internet)

Retirement/investing: $1.2k

Discretionary spending: $800
All things considered, these numbers look decent, considering the fact you are both in your 20s, you probably have some decent income growth ahead of you as well, which you may rely on.
ChocolatePoo wrote: That leaves 1k left for general saving (sinking fund savings, vacations, new car savings, etc). We are frugal, budget monthly, and have absolutely zero debt except our current mortgage. Cars owned outright. I work in tech and my wife is a teacher so it's nice to know she'll have a strong pension in the future.
This seems tight to me. The thought of bringing home 8k and 5k going out the door in expenses before retirement savings seems too high for me to get comfortable with. The last thing that makes this more nerve wracking is that we're expecting our first child in February, so household take-home pay will drop from 8k to about 6.5-7k with her on EI. Then when she goes back to work, daycare bills will be hell. We're in in our late twenties. If we buy a new house and don't ever pay extra on the mortgage the whole 25 years, the house would still be paid off by our mid 50's which would be very nice.
So the first thing you need to budget for is the kid. You probably only need a couple thousand to cover off your "start-up expenses", ie stroller, crib, car seat, if that. So really, you've got a 2 scenarios to consider. Which is 1: Income loss during mat leave, and 2: Daycare and other expenses. You have already considered the first, so how about the second? If you get a cheaper daycare you might be looking at $1k a month, or the more expensive side is $1500 a month, really just depends at what is available in your area. Also, for simplicity we'll just assume daycare gets back to "normal" in the future. You will get your wifes marginal rate in a refund on the first $8k of your expenses a year, so that will help a bit.

So if you budget $1500 in for daycare and other expenses, your cash flow on a monthly basis is already reduced to $6.5k. Which will eliminate your general savings and cut into some other areas as well. So the question from there is..... How do you afford your next car, and do you have any plans of having a second kid? These things said, you maybe be able to consider potential income growth into this equation. Also, do you think you will be able to get help from parents, relatives or friends for childcare?

Also, post kid, you probably will probably be going out less, or have expenses reduced in other areas, so that will help too.

Moving on from there, as others have stated, you may be able to up your downpayment using your RRSP. Depending on how much RRSP space you both have, you could transfer your TFSA money to your RRSP, get the refund at your marginal rate, and then use that money up to the max amount to pay for your home downpayment. Up to $35k each, you could increase your downpayment by a good 30%. I assume you probably have a fair more cap space than your wife, and your marginal rate is higher, so thats good too.

Also, what is your break down of expenses? $2700 mortgage, $400ptax, $1200 groceries, $300 insurance, then utilities round it out to $5k total? One item you could be missing here is maintenance costs. Also, don't forget life insurance with a mortgage and kid on the way!

All in all, I think you're doing great, and giving proper considerations to big life decisions. When I bought a house and had kids in my 20s, my savings got completed destroyed and my retirement savings were basically non existent for a number of years until daycare ended and/or income increased.

Hope this helps, and congrats on the kid.
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SubjectivelyObjective wrote: All things considered, these numbers look decent, considering the fact you are both in your 20s, you probably have some decent income growth ahead of you as well, which you may rely on.



So the first thing you need to budget for is the kid. You probably only need a couple thousand to cover off your "start-up expenses", ie stroller, crib, car seat, if that. So really, you've got a 2 scenarios to consider. Which is 1: Income loss during mat leave, and 2: Daycare and other expenses. You have already considered the first, so how about the second? If you get a cheaper daycare you might be looking at $1k a month, or the more expensive side is $1500 a month, really just depends at what is available in your area. Also, for simplicity we'll just assume daycare gets back to "normal" in the future. You will get your wifes marginal rate in a refund on the first $8k of your expenses a year, so that will help a bit.

So if you budget $1500 in for daycare and other expenses, your cash flow on a monthly basis is already reduced to $6.5k. Which will eliminate your general savings and cut into some other areas as well. So the question from there is..... How do you afford your next car, and do you have any plans of having a second kid? These things said, you maybe be able to consider potential income growth into this equation. Also, do you think you will be able to get help from parents, relatives or friends for childcare?

Also, post kid, you probably will probably be going out less, or have expenses reduced in other areas, so that will help too.

Moving on from there, as others have stated, you may be able to up your downpayment using your RRSP. Depending on how much RRSP space you both have, you could transfer your TFSA money to your RRSP, get the refund at your marginal rate, and then use that money up to the max amount to pay for your home downpayment. Up to $35k each, you could increase your downpayment by a good 30%. I assume you probably have a fair more cap space than your wife, and your marginal rate is higher, so thats good too.

Also, what is your break down of expenses? $2700 mortgage, $400ptax, $1200 groceries, $300 insurance, then utilities round it out to $5k total? One item you could be missing here is maintenance costs. Also, don't forget life insurance with a mortgage and kid on the way!

All in all, I think you're doing great, and giving proper considerations to big life decisions. When I bought a house and had kids in my 20s, my savings got completed destroyed and my retirement savings were basically non existent for a number of years until daycare ended and/or income increased.

Hope this helps, and congrats on the kid.
Thanks for the tips... we own a home right now so unfortunately the first-time buyers plan doesn't apply to either of us. Maintenance costs is part of the $1.2k savings and life insurance is already included in expenses. So are utilities. We may be able to get some help with childcare here and there so that would help save a bit of money.

Even with the kid we would be able to pay all our bills and still put away a decent amount for retirement. I guess it's the part about not having much $ after those things that is getting to me. We're used to saving ~2k/month after expenses and retirement, so to drop down to saving ~$500, sometimes zero, is daunting.
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ChocolatePoo wrote: Even with the kid we would be able to pay all our bills and still put away a decent amount for retirement. I guess it's the part about not having much $ after those things that is getting to me. We're used to saving ~2k/month after expenses and retirement, so to drop down to saving ~$500, sometimes zero, is daunting.
I think the best advice that I can pass on that someone once gave to me, is that "there will never be a perfect time to have a kid", maybe you could double your incomes ezpz, then everything lines up nicely, but still, in reality, there will always be major obstacles, and included in those financial obstacles to having kids. Just based on housing costs and childcare costs for our generation alone, its going to be hard on finances for 99% of the population.

In our peak childcare years, I think we were paying $2600 for 2 kids a month. Its spicy, but really just need to do the best you can to get through it, avoid debt, and then expenses let off a bit when daycare is done (might depending on your kids sports and activity choices).

Based on your age hopefully income growth will be on your side, and you won't have any crazy other expenses come up.

I'd just start looking at the market on and off from now, see what options you have, etc. Maybe a 3br town will suit your needs nicely and save you enough money to give you comfort over a semi or detached. Nailing down your options and more exact prices will help you fine tune your decisions making and options using forward.

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